Vietnam's booming economy

BBC's business program the other day had a discussion of Vietnam. Three capital fund managers were interviewed and all three were very up-beat. Two, I would guess, were recent arrivals (even though they were both Vietnamese or Vietnamese-Americans) as they had their history pretty wrong. The third was a British fund manager who has been in the country since 1994 and, according to me anyway, seemed to know what he was talking about. Inter alia, he forecast that Vietnam will be the dominant economic power in ASEAN before long. I agree with him, not because he ranted about how the country is only recently opening up to foreign investment (which is what the others did - they clearly weren't there in the mid-'90s), but because he talked about the growth prospects, the education levels and the brilliant organizing ability of local firms. None of them mentioned the role of the government, which has been crucial (as also in China), but doesn't fit with their glorification of the private sector and the market. Maybe this is because businessmen don't like to talk about how dependent they are on government assistance.

None of it, of course, augurs well for socialism (by which I mean democracy and equity).

The inevitable result of the Surge

Let's suppose that the original invasion of Iraq plus Israel's disastrous adventure in Lebanon last year have brought about a fundamental change in the balance of power in the Middle East. The losers in this shift are Israel and the Saud family. The gainers are Iran and Syria. From that standpoint Bush's escalation is very rational. The US cannot afford to pull out and leave the field to the 'axis of evil'. It has to attempt to defend the gains made - and putting it bluntly, they are gains because the objective was never democracy and blah blah in Iraq, the objective was always to gain a strategic foothold for Big Oil & associates as well as a possible new base in case the Saudi regime went belly up.

So the foothold of aspiration has become a toehold in reality. Escalation was thus inevitable, given that Bush's political constituency has always been so closely linked to BO & Associates and, since the warmongering began, Big Defence & Associates. In 2001 the US was in the middle of a serious recession. I seem to recall saying back when the wars began that this would be good for the economy and it has been. However, the crash is also inevitable sooner or later - the articles about excessive liquidity in the global financial system have already begun to appear. The following is from the WSJ a couple of weeks ago:

The world's financial system is overflowing with stocks, bonds and other financial assets -- $140 trillion worth, to be precise.

The figure was released in a study by McKinsey & Co. that maps financial assets around the globe and seeks to track the flows of these assets as they move from one region to another, putting hard numbers on the oceans of capital washing up around the globe.

At $140 trillion in 2005, the value of the world's financial assets hit a new peak and was more than three times as large as the total output of goods and services produced across the planet that year.

The study, released today, paints a picture of a world in which investors and the banks that manage their money are spreading their bets more broadly. Flows of investment across borders hit $6 trillion in 2005, McKinsey said, above levels reached at the height of the 1990s stock-market bubble and more than double the figure in 2002.

At the epicenter of these financial flows is the U.S., which takes in about 85% of the flows from countries that are net exporters of capital -- places like Japan, China and the Middle East. "It's a pretty striking thing," says Diana Farrell, director of the McKinsey Global Institute, an in-house think tank that produced the report. "Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it."

Global financial flows are likely to accelerate in the coming years. "The growth in trade in financial assets is proceeding about 50% faster than the growth in trade" in goods and services, says Kenneth Rogoff, an economist at Harvard....

Ninety percent of global capital flows run between three regions: the U.S., the United Kingdom and the European countries that use the euro, the report found. Capital flows in and out of Japan in recent years, according to McKinsey's data, were smaller than China's.

When the financial bubble bursts, Europeans and Americans will have squillions wiped off the value of their assets. China is in a much better position since it has no ideological problems with the Iranian regime and will be only too glad to step in when the US loses its toehold. But before that happens, the war seems very likely to spread - to Iran in the first instance. Do they seriously think they can win that one? Can your average American jackboot tell the difference between an Iraqi militiaman and an Iranian one (there are already, according to a professor at Tehran University, thousands of Iranians in Iraq lending a hand to the Shia side - or a civilian and a militiaman for that matter? Will they care? I don't think so as the stakes are too high to worry about a few mere humans.

The result is predictable. There will be a Shi'ite arc across the Middle East (let's face it, there already is since the election in Iraq.) Not so predictable: a new regime in Arabia? Israel pushed into the sea? Depends how far the escalation goes.

The Suffolk Strangler: same old

This article by Julie Bindel, written during the earlier part of the investigation, is worth a read. She compares the police investigation with that of the so-called Yorkshire Ripper (Peter Sutcliffe). So little has changed.

Five years after the Ripper's first murder, the only solution the police had come up with was to impose a curfew on women. We were urged to "stay indoors" and told, "Do not go out at night unless absolutely necessary, and only if accompanied by a man you know." (Sutcliffe himself gave the same advice to his sister.)

The women's movement responded by posting the following notice all over town:
"Attention all men in West Yorkshire, there is a serial killer on the loose in the area. Out of consideration for the safety of women, please ensure you are indoors by 8pm each evening, so that women can go about their business without the fear you may provoke." The cops tore the notices down and, in Ipswich last month, they adopted the same policy of a curfew on women. As Julie Bindel observes:

Police have not thought to advise men not to go out to buy sex in Ipswich, but they should have done, just as the police during the Yorkshire Ripper inquiry should have. Men need to be told that their presence can mask and protect men who go out in order to harm and kill.

The sex industry is in the news again

The mayor of Amsterdam has once again proposed the closure of the city's windows district on account of the rise of organized crime linked to prostitution. This news surprised me, because I thought legalised prostitution was supposed to reduce the involvement of criminals and improve the conditions of working women. Certainly that was always the intention of legalisation. Then there is the case of the 5 murdered women in Suffolk. What surprised me in that case was the public outpouring of sympathy for the women - plus the fact that people immediately assumed that vulnerability extended to all women in the area, not only prostitutes.

Most Australian states have legalized or at least decriminalized prostitution at some stage in the 1980s and '90s and, as in the Netherlands, the results are quite remote from the intentions. It is true that public attitudes have changed a lot. In Holland, for example, a large majority of the population regard prostitution a legal economic sector and approve of efforts to improve the position of prostitutes, though prostitution is not accepted as a worthwhile profession. The sex industry (broadly defined - e.g. including escort services, lap dancers, strippers etc.) reportedly accounts for 5% of Dutch GDP! In Victoria, Australia, it's much the same. The Age (Melbourne) reported in 1996, two years after more or less full legalization: 'sexually explicit entertainment and prostitution are becoming just another service industry'. 'Like it or not, sex work is entering the mainstream'. 'In January's edition of the tourist guide This Week in Melbourne ... there were ... three pages of advertisements for prostitution services. Bank managers can claim visits to a table-top dancing club as a business expense.' (3 Feb 1996: 1)

On the other hand, a paper by Arnot (2002) said that most sex workers in Melbourne couldn't be open about their work on account of the stigma - attitudes to the industry have changed, but not to the people who work in it. Bindel and Kelly (2003) note that "in the few surveys which ask the opinion of those currently involved in prostitution, few support legalisation. The extent to which they also view violence as an 'occupational hazard', raises serious questions, on this ground alone, whether prostitution can ever be considered as 'just another form of employment'." The research in this report isn't is a bit too anecdotal for my liking and insufficiently informed by comparisons with other forms of female-dominated employment, but it raises very interesting questions that demand something better. Moreover, it belongs to a preciously small body of work on the subject. Some of its findings:

1. On choice of profession
In Victoria in 1996, 64% of women in brothel and street prostitution wanted to leave the sex industry, and 57% were actively looking for other work. All the women in street prostitution surveyed wanted to leave, but faced great barriers: homelessness, drug addiction, and a cycle of being fined for prostitution, doing prostitution to pay for the fines, and imprisonment (Noske & Deacon 1996). In the Netherlands one study found that "79 percent of women in prostitution gave an indication that they were in prostitution due to some degree of force". Further: "Bullens and Van Horn (2002) analysed police records of 16 young prostitutes. Results show that the girls were recruited by so-called 'lover boys' who applied various seduction techniques to make the girls fall in love with the pimps. In general, the girls were procured into prostitution by means of physical violence. To protect and secure their income and organisation, the pimps used a wide range of techniques of which the use of physical violence can be considered the most effective."

70% of prostitutes in Holland are of non-EU origin, which means that they need a work permit to work legally in Holland and sex work is the only area in which you absolutely cannot get a work permit.

Most don't want to get onto any government-related record (which might afford them better protection) because they don't want to be tagged forever as having been a sex worker.

2. On the 'harm minimization' goals of the legislation.
According to the Prostitutes Co-operative of Victoria (PCV), while women in the sex industry consistently asserted to customers that condoms were essential, one in five customers still requested unsafe sex. Not all legal brothels insisted on condom use (TA 28 Feb 1999: 19). The PCV research found that youth, inexperience and drug use made it more difficult for women to enforce condom use, even in legal brothels (Pyett & Warr 1999: 183). In 2000, WorkCover [Australian federal government agency] and police began raiding brothels because of complaints about women being forced to have unprotected sex. It was discovered that women were being pressured to have full sex without condoms in unhygienic and often unsafe conditions (TA 13 Aug 2000: 3). Though research on the health of women in the sex industry has tended to focus on STDs and condom use, none of the research in this period assessed actual rates of STDs among women in the sex industry (Pyett & Warr 1999: 189).

Research in 1996 with 23 street workers found that all had been raped, bashed or robbed by a customer and all had been forced to have sex without a condom (TA 4 Sep 1996: 5). Women tended to blame themselves for violence and did not report it to police (Pyett & Warr 1999: 188).

Street workers are more vulnerable, but a fragment of a paper available here reports the following in relation to all prostitutes:

Perkins (1991) reported that 20 per cent (26 of 128) of respondents to a survey of New South Wales prostitutes had been raped in the course of their work, half of these more than once. However, the same study reported a much higher incidence of rape outside of work: almost half of the 128 women had been raped while not working, with 95 per cent of these assaults perpetrated by a husband, lover or acquaintance.

In both work and non-work environments, these are much higher percentages than for the female population as a whole, especially the employed population. Further: sexual violence against sex industry workers is more likely to be accompanied by physical injury, more frequently necessitating hospitalization, than in other cases. This makes it a particularly hazardous industry to work in. Again, however, it fits with historical patterns of treating female victims as 'asking for it'. Sex workers, in particular, don't 'ask for it'. They are engaged in the sale of a specified service for which there is an agreed price as for any other service. There is no ambiguity. Because it is a commercial transaction there are none of the ambivalences about the meaning of 'no'. Sexual assault of sex workers by their partners reminds me of the incredulous attitude with which many men back in the 1970s greeted the South Australian legislation against rape within marriage - as if signing a marriage contract meant that you handed your husband a permanent 24/7 entitlement to do whatever he wanted with you.


3. Criminal organizations and trafficking
Since you can only get a brothel licence in Victoria if you have no criminal record, the industry is riddled with front men and women acting on behalf of criminal gangs who use the legal (licensed) part of the industry to launder funds. Trafficking has increased as legalization has increased demand. Project Respect estimates that there are up to 200 women under `contract' in Victoria at any one time, and that at least seven licensed brothels in Victoria used trafficked women in 2002. Trafficked women commonly pay off debts between $30,000 and $50,000, experience significant physical and sexual violence, and are frequently deported. In July 2003, four people in Victoria were charged with sexual slavery. I haven't found the results, but prior to that there had been no successful prosecutions. The sexual slavery act came 5 years after the full legalization in Victoria - note that Victoria did not have such an act - and was a response to the rapid rise in trafficking after legalization. In 2000 the police estimated that 500 trafficked women were working in Sydney.

Trafficking is far worse in Holland where the illegality of non-EU workers is a the dominant feature of the industry. While most Dutch people support equal rights for these women with locals, the reality is something different.

4. Supply
In Victoria, on 1 July 1983 there were 149 brothels known to the police. All of them were illegal. In June 2003 there were 95 legal brothels and 400 illegal ones known to police and 1688 brothels exempt from the licensing requirement because they operated with not more than 2 prostitutes. In addition, there were 37 escort agencies in 1985 when they were still unregulated, 39 in 2003 plus a further 91 that operated as both brothels and escort agencies.

In 1985 there were 3-4000 prostitutes working in Victoria and 6000 in 1991. Since then there appear to be no data. However, the number of women working in escort agencies rose from 300-500 in 1985 to 5000 in 1994. The number of street workers has risen from 200 in 1985 to 400 in 2003.

There are some complaints that it is an industry controlled by big business. In the brothels, there are 'menus' and women cannot chose which items they will suppy or not. They get told how to dress, etc - which of course is no different from any other industry that employs either men or women.

5. Demand
In 1985, the Neave Report (which prepared the way for legalization) estimated that there were 45,000 visits to prostitutes each week in Victoria. By February 1999, the estimate had risen to 61,000 visits a week. That is about a 2.2% annual growth rate. Since the average annual population growth rate of Victoria is 1.2%, this implies either an increase in the proportion of men using prostitutes or an increase in their frequency of use.

A study published in the British Medical Journal in 2005 found that the proportion of British men who reported paying for heterosexual sex had increased from 5.6 per cent in 1990 to 9 per cent in 2000. An article in The Times begins to suggest an answer: while in the west free sex is more easily obtained than ever, western women demand something in return. The prostitute, on the other hand, offers an obligation free transaction. Basically, a man has an itch that has to be relieved and if he is in danger of acquiring an obligation - or even just a vague feeling of guilt that he might be skipping some unspecified obligation - he might as well pay for it.

But wait a minute! An itch can be relieved by masturbation (no guilt, not even any money). So what's with the need to pay women for the service?

Sweden
Sweden became the first country in the world to make the purchase of sexual services a criminal offence on 1 January 1999. This was one element in a comprehensive Violence Against Women Bill (Swedish Government Offices, 1998) in which prostitution was defined as a form of male violence against women. Sweden is thus one of the few signatories to fulfil Article 9.5 of the UN Optional Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children (2001) supplementing the UN Convention Against Transnational Organized Crime. This article states that signatories must put into place measures to discourage demand.

In Sweden prostitution... is officially acknowledged as a form of exploitation of women and children... which is harmful not only to the individual prostituted person but also to society at large… This objective is central to Sweden’s goal of achieving equality between women and men at the national level as well as the international. However, gender equality will remain unattainable so long as men buy, sell and exploit women and children by prostituting them... Prostituted persons are considered as the weaker party, exploited by both the procurers and the buyers. It is important to motivate persons in prostitution to attempt to exit without risk of punishment. By adopting the legislation Sweden has given notice to the world that it regards prostitution as a serious form of oppression of women and children and that efforts must be made to combat it. (Ministry of Industry, Employment and Communications, 2003, p. 1)

When I originally read the Bindel and Kelly paper, I wondered why they used the term 'prostituted women' instead of 'sex workers'. The meaning of the language is pretty clear. It denies the 'agency' of the women. Well, no actually. The Swedish law says that prostitution is an expression of the unequal power between men and women. Any 'agency' that the women have is confined to a realm defined by the power relation in which they find themselves. The Swedish government, alone in the world, has decided that this relation must be equalized. It has therefore completely decriminalized the provision of sexual services and criminalized the purchase of them. The Swedish approach locates the cause of prostitution in the arena of demand – whatever women’s social circumstances they would not and could not sell sex if there were no one willing to pay for it. The underlying reason for the existence of prostitution is the continued inequality between women and men, and men’s sense of (obligation-free) entitlement to sex. Prostitution is regarded as a form of sexual violence. In terms of the wider social effects prostitution contributes to the inferior status of all women and girls - and this links back very neatly to the fear induced in all young women by the murders in Suffolk.

I like the Swedish argument. While legalization of prostitution has brought about (or resulted from) a significant change in social attitudes, in the sense that prostitutes are no longer blamed for their condition, we need to go a step further. The reason prostitutes remain at the bottom of the social ladder is that men can simply commodify something that would otherwise have to be negotiated as part of a human-to-human relationship (however fleeting). Legality reinforces the commodification and presents the delusion of an equal exchange.

Do we still live in a federation? Should we care?

The High Court handed down an important judgement today on the legality of the federal government's industrial relations legislation. As expected, they found that it was legal. It doesn't really take a lawyer to see that the Constitution fairly explicitly gave power to the federal government in the relevant area. There is only one section (51xxxv) that refers to state powers in relation to industrial relations and that refers only to the settlement of disputes that don't extend outside state boundaries, not to the establishment of the framework in which such disputes might take place. My guess is that the only point of discussion is over what constitutes a 'corporation'.

Commonwealth Of Australia Constitution Act
Chapter I. The Parliament.
Part V - Powers of the Parliament

51.The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: -
....(xx.) Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth...
...(xxxv.) Conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State...

Chapter V. The States.
109. When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid....

From Wikipedia:
In the first two decades of its existence, the High Court adopted a doctrine of reserved State powers combined with "implied inter-governmental immunities". The essence of the first part of the doctrine was that grants of power to the Commonwealth in the Constitution should be read in a restrictive way so as to preserve as much autonomy as possible for the States. The essence of the second part of the doctrine was that the Commonwealth and States were immune to each other's laws, and could not mutually regulate each other's governmental apparatus: for instance, they could not tax the wages of each other's employees or force each other's employees to submit to compulsory industrial arbitration.

There was little basis in the text of the Constitution for this doctrine although the judges who developed it had all been active members of the Constitutional Conventions and believed that it was implied in the nature of federalism itself.

...The doctrine was swept away in the 1920 decision in the Engineer’s case (after changes in the composition of the Court).[NB: another industrial relations case] The Court now insisted on adhering only to the language of the constitutional text read as a whole in its natural sense and in light of the circumstances in which it was made: there was to be no reading in of implications by reference to the presumed intentions of the framers. In particular, since there is no mention of "reserved State powers," only one express inter-governmental immunity (regarding property taxes: section 114), and, an express provision asserting the superiority of valid Commonwealth laws over inconsistent State laws (section 109), there was no longer any room for the doctrine previously asserted in favour of the States.

While the new IR legislation certainly demolishes a lot of rights that workers have gained over the past century, it isn't at all clear to me that the latest ruling on the Constitution is disadvantageous. At the moment we have Labor governments in all states and a Liberal federal government. It could just as easily go the other way. The states do not have a good historical record in protecting human rights - particularly those of Aborigines. What we need to do now is change the government at the federal level to get rid of this rotten legislation.

At a deeper level, it isn't clear that trade unions have much of a future in their present form. One consequence of the IR system we've had for the past century is that the unions have become part of a tripartite club revolving around the Industrial Relations Commission. Since wages and conditions were largely settled in a legal environment, membership and activism became secondary to the raison d'etre of the unions. Basically unions only survive in the diminishing proportion of large-scale units (especially the public service). Now that casualisation of the workforce has taken hold in a big way, it is difficult for them to recruit members - there has been a massive swing in bargaining power towards the employers and the destruction of the old arbitration system is merely a reflection of this, not its cause.

One could also make a point about the Prime Minister's interpretation of 'Australian values', which for most people includes the notion of fairness. The way Howard interprets this is extremely narrow - the Act in question is called the 'Workplace Choices' Act. This effectively means that employers get more choice over hiring and firing, while workers get more choice about whether to accept low pay or starve. The PM is clearly against the idea of workers being 'coerced' by unions into accepting high wages and protected working conditions. One of the biggest changes that the legislation brought about was the abolition, for businesses employing fewer than 100 workers, of the 'unfair dismissal laws' which, according to the government, were unfair to employers because they couldn't just get rid of anybody without having a good reason. In PM-speak, employers were being 'harrassed' by court cases over unfair dismissal. Under the new law, they won't be harrassed anymore and they can probably harrass their workers as much as they like. All's fair in love and class war.

Sustainable poverty

I actually wrote this some time ago, but I'm still seeing congratulatory notices about the award of the Nobel Peace Prize to a banker, Mohammad Yunus and his Grameen Bank. What most of these notices are suggesting is that, while criticisms can be made, the development of Grameen-type microfinance schemes has really achieved something towards poverty reduction.

Much of the criticism of the Grameen Bank and its numerous clones has been of the high interest rates charged. I don't actually have a problem with these rates. Sure, the rates are above those available from the rest of the banking system. But the trouble is that lower rates are simply not available to the poor. While the poor have a very high demand for credit, they normally have to resort to even higher interest rates from informal sector money lenders. From the banks' point of view, the poor are not creditworthy since they have no collateral to offer, their loans are too small and require too much administration (no economies of scale), etc. The risks of default are high. From the money lenders' point of view, they are creditworthy in so far as they can be induced to accept permanent indebtedness. For example, as long as they keep paying interest, they may not be required to repay the principal - the equivalent of endlessly renewing the loan. If they cannot pay the interest in money, there are ways to extract it in kind - a common example being the provision of labour. In some countries you can find people repaying the debts of their grandparents.

What Yunus has achieved is to demonstrate to the bankers that people without physical collateral can be rendered more creditworthy through the mechanism of 'social capital'. To be eligible for microfinance you have to be part of a group that guarantees your loan repayments. If one person defaults, the group has to cover the debt - so the majority of microfinance programs also try to encourage the groups to save. However, the savings schemes are less than successful, for the simple reason that poor people generally aren't able to save money. What happens is that many borrowers, in order to meet their repayments to the Grameen and other banks, have to borrow from the informal sector - either from moneylenders, in which case the payments required are regular and probably higher than those from the bank, or from family and friends, where they are likely to be less regular and can often be delayed.

Thus Yunus' great discovery was to find a way to transfer some of the income stream from money lenders to the formal banking sector and, to a lesser extent, to the poor.

Whether this actually has any impact on poverty reduction is another question altogether. For those who have to resort to moneylenders and others to meet their debt service requirements to the Bank, the answer is clearly no. For others, the answer is still moot. Loans available through microfinance schemes are very tiny (typically in the range $50-$200). This might be enough to establish a micro-enterprise, but it is scarcely going to enable somebody to accumulate sufficient capital to climb out of poverty. Successful micro-entrepreneurs might enter the realm of sustainable poverty, meaning the kind of poverty that is not going to kill them as early as it would otherwise have done. The risks remain very high: if your chickens die, or you suffer a bout of illness, you can still lose everything. Generally speaking, you're probably better off if you can find a factory job since regular wage income is generally higher than incomes from micro-enterprises. Regular wage jobs are in short supply, however, so Yunus' scheme of providing financial intermediation at lower rates than the money lenders is probably better than nothing. What it is not, is economic development.

Moreover, microfinance schemes are not themselves independently sustainable. The low default rates are a reflection of the continued dependence of the customers on the informal sector. The much vaunted 'social capital' of the borrowers is in fact simply a method of imposing discipline on them - forcing them to repay even when they cannot. Otherwise, microfinance has to be sustained by the subsidies from the commercial banking system - which is only possible when the banks are directed by the government. In Vietnam, for example, the Social Policy Bank (formerly known as the Bank for the Poor) is able to charge low rates of interest because its capital is supplied directly by the Agriculture Bank and others. The same applies to the large microfinance scheme operated by the Vietnam Women's Union which also obtains its capital from the Agriculture Bank. This system generates problems of sustainability for the banking system as a whole.

The problem of sustainability of microfinance has often been referred to in the literature, not only in the Vietnamese case. There have been many attempts to clone the Grameen Bank, but many, if not most, of them are unsustainable because they rely on subsidies to survive, basically because they do not generate savings deposits and, despite the high interest rates, their lending margins are insufficient to generate increases in loanable funds.

Intel in Vietnam

The Wall St Journal reports today that Intel has received permission to increase its initial investment in Vietnam to up to $1 billion. The original license, granted in February, was for $605 million - it is using this to build a chip manufacture and testing plant in Ho Chi Minh City, scheduled to open next year.

In 2005, computer and electronic equipment exports from Vietnam rose 34% to $1.44 billion, while imports of computers and electronics rose 26% to $1.7 billion.

China's role in the third world

Had an interesting discussion at work yesterday about China's role in Africa and other underdeveloped regions. It was prompted by an article in The Economist on Chinese investment in Africa. It discusses the new Chinese presence in Africa in typical Economist terms:

China already buys a tenth of sub-Saharan Africa's exports and owns almost $1.2 billion of direct investments in the region.... A Chinese diaspora in Africa now numbers perhaps 80,000, including labourers and businessmen, who bring entrepreneurial wit and wisdom to places usually visited only by Land Cruisers from international aid agencies.

I mean wow! How big is the European 'diaspora' in Africa by comparison? Who bought the Landcruisers? "In the cold war Maoists dotted Africa with hospitals, football stadiums and disastrous ideas." And, if I remember correctly, infrastructure projects (the TanZam railway). Now China only wants access to raw materials. The West, of course, never tried any such thing. 'We' never undermined African efforts with our protectionism and our support for apartheid, Ian Smith, Mobutu, the Nigerian junta or Tubman "our aircraft carrier in Africa".

Sadly, China's success is an obstacle, as well as an inspiration. Its rise has bid up the price of Africa's traditional raw commodities, and depressed the price of manufactured goods. Thus Africa's factories and assembly lines, such as they are, are losing out to its mines, quarries and oilfields in the competition for investment....

China is doing its bit to improve infrastructure, building roads and railways. But it could do more to open up its own markets. China is quite open to yarn, but not jerseys; diamonds, but not jewellery. If it has as much “solidarity” with Africa as it claims, it could offer to lower tariffs on processed goods...

Competition from whom? Here we get to the nub of the question, which is: how dare those Chinese upstarts encroach upon our territory? How dare they not lower their trade barriers while demanding that we lower ours? The hypocrisy astounds me.

Discussion of the Economist article segued into a discussion of Burma, one of our pet topics. China (also India and Thailand) are playing an increasing role in that country, to the detriment of Western efforts to boycott the regime. Asia Times has this to say:

Foreign investment into Myanmar surged to a record high US$6 billion in the fiscal 2005-06 year that ended in March, up from the paltry $158.3 million recorded the previous year...

That's five times the amount of Chinese investment in the whole of Africa!

Myanmar has significantly managed to bypass the Western-controlled multilateral lending agencies, including the World Bank, which has in the main observed the US and EU sanctions, and accessed capital investment directly from private-sector Asian sources. While various US and European companies closed down their Myanmar-based investments because of the sanctions, Chinese and Indian - mainly energy - companies have rapidly filled the gap.

Western sanctions' failure to achieve economic collapse and political change in Myanmar significantly underscores both the United States' and Europe's waning and China's and India's growing economic influence in the region. As Asia's economies become more integrated, particularly through greater Chinese- and Indian-inspired trade and investment links, Western-led economic threats clearly no longer strike fear into the region's roguish regimes.

Myanmar's ruling junta last year abruptly moved the national capital from the coastal city of Yangon to the inland, mountainous redoubt of Naypyidaw. Ironically, perhaps, the junta is now pumping profits earned from China and India into building up a new military-industrial complex, where the ruling generals are living comfortably and hunkering down against a possible US military rather than economic threat.

All this raises interesting questions. Burma has become the new locus of competition between local powerhouses - China, India and Thailand. The West seems to have an outdated notion of its own importance, but its sanctions no longer work - if they ever did. What is the right way to go in a situation like this? From the realpolitik point of view, the only possibilty is to compete. In this argument, Aung San Suu Kyi might ask us to boycott, but she has no power and the boycott has no effect. An alternative scenario is that we invest in Burma with as much vigour as China and India do. Not in extractive industries, but in manufacturing and services that require education - it would encourage them to reopen schools and universities. I don't believe in the mantra that markets create democracy, but if you look at Korea, Taiwan and Brazil, economic development does bring about changes. The mechanism here is not markets => democracy. On the contrary, the mechanism is more likely to be economic development leads to shortages of educated labour and this gives the educated part of the population the power to demand a share of political power.

The Burmese generals are bent on enriching themselves, but in the long-run they cannot succeed without the co-operation of the people. To date their opposition has mainly come from the university-educated class - so they closed the universities. But I think their ability to control the mass of the population stems from the fact that there is no shortage of unskilled labour. From the point of view of the regime, it's easy to replace people you have killed or locked up. Once you start to depend economically on an educated class of people, you can't just get rid of them and you have to make compromises with their demands for more democracy. I think that greater economic security is the fundamental reason that democracy has made progress in South Korea and Taiwan (not to mention earlier in the West itself). You can stave off the inevitable by importing skilled workers, creating a more competitive labour market and making life for the indigenous workers more insecure (as in Singapore, for example). So there's no necessary and inevitable causation between increasing wealth and democratization, but it does seem to help. It will be interesting to see how long the Burmese generals will want to see the top jobs going to immigrant Chinese and Indians rather than provide the necessary middle class education and jobs to their own people.

There are, however, other ways to view the road to democracy in Burma. After all, there are serious moral considerations in dealing with a regime like that and a boycott seems the right thing to do. As noted above, moreover, there is more to democratization than just growing wealth and an expanding middle class. A more appropriate comparison might be, not Taiwan or South Korea, but Saudi Arabia - a regime that managed for half a century or more to grow extremely wealthy without generating any resemblance of trickle down to the masses (Indonesia under Suharto presents a similar, if less stark, case). Most of the Burmese generals' wealth today does seem to come from resources (oil and gas) rather than the labour-intensive manufacturing that stimulated growth in East Asia. In such a case, the only possible route to democracy is overthrow of the regime. Period.

Not just cheap labour

From the Financial Times:

Intel, the world's largest microchip maker, is seeking to set up a $605m (€500m, £355m) plant in Vietnam to design, assemble and test chips, a project that would be a huge boost to the Communist-ruled country's fledgling high-tech industry....

In addition to the assembly and testing plant, Intel is also said to be interested in tapping Vietnamese engineers for the design and development of specialised embedded systems chips.

With a population of more than 80m and an economy that grew 8.4 per cent last year, Vietnam is south-east Asia's fastest-growing personal computer market, with ownership climbing to more than 1.5m this year from a mere 288,000 five years ago.

Domestic sales of computers and related products rose by about 30 per cent last year from 2004.

Who should be in the G8?

The discussion has come up again due to some people wanting to exclude Russia over the Ukrainian gas business, gaoling of Khordukovsky, press suppression, etc. The advocates of this point of view argue that the G8 members are the largest economies that are also liberal democracies. The Russian counter-argument is that it is a grouping of the world's most influential economies. Both are right in a way, but in order to preserve the safety of all of us, I'd rather lean towards the Russian view.

The G8 was once the G7, originally set up to manage the consequences of the 1970s oil shocks in the capitalist part of the world economy. Since neither Russia nor China were then capitalist economies they could, by definition, not participate. The extent to which the group operated as an instrument of US economic power is illustrated by the fact that Bill Clinton could, virtually unilaterally, invite Russia to join during the latter's early post-Communist phase. In this earlier format, while the G7 was always about attempting to generate economic co-ordination, it was at the same time an exclusive club of basically like-minded politicians - a method by which they could negotiate with each other over the solutions to their inevitable economic tensions. Thus the 'largest industrial democracies' argument is right up to a point.

However, the situation has changed somewhat since the early 1990s. China has emerged as an economic superpower and, if its current growth rates continue, is likely to overtake France, the UK and even Germany within the space of a decade or two. Moreover, it is by now the world's 4th largest trading power. These facts would suggest that, from an economic co-ordination point of view, China should be included in the G8 (or whatever number is chosen). But then China is scarcely a lickspittle of the US - the like-mindedness of the old G7 would be out the window. Life would get more uncomfortable, as it already is with Russia about to take up the presidency of the group. Arguably a new kind of Cold War is already beginning - between the dominant western economies (the 'old' imperial economies) and the newcomers like China.

Russia is in the group, probably because the Clinton administration assumed that shifting from an authoritarian, centrally planned economy to a market democracy would be a simple thing and therefore underestimated the extent of the Russian economy's post-Soviet collapse. While Russia has begun to recover and Putin is obviously anxious to flex economic muscle - the only muscle they have left to flex is the natural resources one - it hardly qualifies as one of the world's largest industrialized economies, let alone democracies. I searched 16 countries in the World Bank's database and Russia came in last on the size of its Gross National Income (same on GDP). Other non-G8 countries ahead of it in economic size are Spain, India, Korea, Australia and the Netherlands. Anyway, it's economy is only half the size of Canada's (the next smallest in the G8). Moreover, while it exported 35% of its GDP in 2002, it ranked 11th in terms of the total volume and the share of exports in its GDP has declined since then. Russia does, perhaps, have a disproportionate influence on European energy supplies - which means the Europeans will be keen to keep them in, at least while the current energy scares continue. But as in 1914, it seems the weakest of the current group by a long way.

Canada has recently been overtaken by Spain on GDP, but not yet on GNI. The reason is that GNI includes external resources (e.g. foreign capital inflows and outflows) which increase the size of the US and Chinese economies relative to GDP, but reduce those of all the others. GNI is a better measure to use for G8 purposes because it reflects the external clout of the economy, rather than just its domestic production. Spain is, as yet, a slightly less influential international economic player than Canada. In 2002, for example, exports of goods and services amounted to 28% of GDP compared with 42% for Canada. Then, if you look at the growth rates of these economies, there is much more growth in the bottom half of the list than in the top half (excepting China). Canada might be overtaken, not just by Spain, but by Mexico, India and Korea in the next decade (assuming continuation of current growth - which is always problematical).

My prediction is that the G8 will expand its numbers in the coming years. China may push to get in, but then it may also decide that the East Asian Summit is a better way to promote its global influence against the 'old' imperial powers. That would not, on the whole be a helpful development, especially if the like-minded ones (the US' political allies) decided to start up smaller, more exclusive, club too. Imperial blocs are generally not conducive to world peace.

Gross National Income (Atlas method) 2004 (trillion USD)*

1. United States 12150.93
2. Japan 4749.91
3. Germany 2488.97
4. United Kingdom 2016.39
5. France 1858.73
6. China 1676.85
7. Italy 1503.56
8. Canada 905.63
9. Spain 875.82
10. Mexico 703.1
11. India 674.58
12. Korea, Rep. 673.04
13. Brazil 552.1
14. Australia 541.1
15. Netherlands 515.1
16. Russian Federation 487.34
* The Atlas method gets rid of changes that are just due to exchange rate fluctuations.

Exports of goods and services, 2002 (trillion USD)
1. United States 1042.9
2. Germany 715.0
3. Japan 436.9
4. United Kingdom 406.4
5. France 388.0
6. China 368.6
7. Italy 320.2
8. Canada 304.5
9. Korea 191.5
10. Spain 183.4
11. Russia 120.8

Multiculturalism and gender

I enjoyed this article from Asia Times. The author is a Japanese person, Tawada Yoko, living in Germany. Inter alia, the following passage reminded me of the French riots.

Even right-wing radicals don't need [the term 'German']. They refer to the "whites", an inappropriate term because they often attack ethnic German immigrants from Russia, although they never talk badly of African-American pop stars. They woul love to be racists, but in reality they violently attack those they accuse of being poor.

This reminded me of the French riots because of an article, also written by a person (Alice Schwarzer) living in Germany. It brought to mind not only the question of poverty and powerlessness, but the similarities currently existing between left and right wing politics in advanced industrialized economies (after reading Tawada's article, I am can't bring myself to use the term 'Western'). Multiculturalism which, in a variety of manifestations, is an ideology used to enable minority groups to preserve their own cultures within the society to which they have migrated, seems now to be an out-dated and conservative ideology in a world in which we are faced with the phenomenon of Islamic fundamentalism. What multiculturalism now achieves is to permit powerful patriarchs to present us with a 'tradtion' to which, under the rules of multiculturalism, we must genuflect. In this particular case, the so-called 'tradition' is one of patriarchy. It's not that patriarchy hasn't been an important element of all such 'traditions', including our own, just that we haven't been confronted by it on such a scale in recent decades. Since the feminist wave of the 1970s, patriarchy has been something that women have had to fight in private. Yes, we have a lot more social support systems than we used to have, but the general climate is that equality has been achieved already - even overachieved and could do with some rolling back. Meanwhile multiculturalism allows patriarchs in communities that haven't been through the 70s feminist wave, or any other for that matter, to assert their own version of 'tradition' with impunity.

As Tawada points out, traditions are fictive. They are created in retrospect, by selecting material from a diverse past to suit the needs of the present. This is a point also made in various writings on the development of nationalism by Ernest Gellner, Eric Hobsbawm and Ben Anderson, among others. It is who controls these 'traditions' that is important and how successfully they can be made to appeal to people who are attracted to the 'imagined community' they create.

In the case of the French riots, the constituents of this imagined community were young, mainly French-born, males of North African descent. Multiculturalism attributes their protest to high levels of unemployment. But as Schwarzer pointed out, the unemployment rates, though high by French standards, are twice as high among women of this 'community' compared to men (25% for males and 50% for females). So if it's a question of unemployment, why were the women not present at the riots in large numbers (as they were in the 1968 events in Paris). The answer that Schwarzer gave was that if the women go out of the house dressed, as the men were, in 'French' gear as opposed to 'traditional' gear, they are liable to be viciously attacked by members of their own 'community'. Jeans and T-shirts are, of course, part of 'traditional' Islamic dress for men, while French women have died for daring to suggest the same applies to their own sex.

If you look at it this way, then Sarkozy's response to the riots and other French responses to multiculturalism, such as the recent ban on hijab in public schools, cannot in any way be seen as worse than the response of the left. Multiculturalism has become just another way of putting women back in their place. The fact that many women cooperate with this revival of patriarchy doesn't make it any better. Women in hijab are making a statement of the fact that, by adhering to religion, they are accepting the 'natural order' of patriarchy. I don't want to digress onto my favourite punching bag of religion here, so let me just say that hijab is not prescribed in the Koran. Hijab is a 'tradition' created by modern proponents of Islam to oppress women - specifically, to encourage them to deny their sexuality.

If the 'imagined community' of Saint-Denis is poor and powerless relative to mainstream French society, the women of Saint-Denis are doubly so. Where, in all the chatter of the multiculturalist left do we find any discussion of the brutality of these 'poor and oppressed' men towards the women they live with?

PS: You have to read Tawada's article to get the reference to Montana.

Poverty in Vietnam and China

According to today's Financial Times, the 'eradication' of poverty in China has actually been going in the other direction since China joined WTO in 2001. Three quarters of rural households are expected to suffer a cut in real incomes between 2001 and 2007.

ICFTU says that membership of the WTO has boosted the incomes of those already benefiting from China's economic reforms: private enterprise capitalist and white collar workers. The losers have been blue collar workers, farmers and unskilled office workers, "whose income has remained stagnant for the last 10 years".

About 250m people still earn less than $1 a day, the official measure of poverty, and 700m, 47 per cent of the population, live on less than $2 a day. As a result, "the people who provide everything from T-shirts to DVD players to the world's consumers often have 60-70 hour working weeks, live in dormitories with eight to 16 people in each room, earn less than the minimum wages that go as low as $44 per month, and have unemployment as the only prospect if they should get injured in the
factories", says the ICFTU.

It warns that China will need to create 300m new jobs over the next decade to compensate for job losses in agriculture and at former state-owned enterprises - which is "much higher than China's current job creation capacity".

Unemployment and inequality therefore would continue to rise "if the Chinese government's strategy for further growth, employment creation and poverty eradication is based only on securing a larger share of global trade".

Since 1995, the number of companies under state control has halved, shedding 59m jobs, while emerging private enterprises have created only 16m jobs, according to the International Labour Organisation.

Guy Ryder, ICFTU general-secretary, said: "Most people seem to have been too blinded by China's economic results to see the dark side. Domestic concerns, such as their own trade deficits and the jobs they might lose from cheap Chinese imports, have overshadowed any doubts the international community may have about exactly how Chinese companies are able to produce DVD players that sell for less than $50."

All of this is reflected in growing discontent. The number of so-called 'mass incidents' (sit-ins, riots, strikes and demonstrations) each year has grown 7-fold since 1994 and the number of participants by 5-fold. In 2004 there were 74,000 such incidents with about 3.7m people. The number of petitions to the central government has also reached a record high.

Luckily for Beijing, brewing social unrest has not precipitated a nationwide crisis, and participants in these incidents, localised and poorly organised, have yet to form an anti-government movement with mass appeal. Most incidents are triggered by specific grievances (unpaid wages, high taxes and arbitrary land seizures). The government occasionally appeases protesters by punishing local officials or redressing these grievances. If that fails, the authorities can always call on well-equipped anti-riot police. (FT 6/11/05)

This sounded somewhat like Vietnam to me, although in that case the number of incidents does not seem to be rising, the main reason for them has always been land rather than unpaid wages or taxes, and while the armed forces have been used to restore order, the more frequent response is to send in the Prime Minister or Party Secretary to solve the problem. Maybe the difference lies in the paragraph below from the same article.

At a more fundamental level, China’s investment-driven growth strategy, which powers economic growth with excessive physical capital but short-changes practically everything else, is generating crushing social strains: environmental degradation, a collapsing public health system and neglect of the poor. The resulting social discontent is further amplified by an unresponsive authoritarian political system with few pressure valves. Ordinary Chinese citizens have little recourse for redressing grievances. The official petition system, which ostensibly enables aggrieved individuals to seek intervention by higher officials, has broken down. Only two in 1,000 petitions actually lead to some kind of resolution. Chinese courts offer little judicial relief. They accept only about 90,000 lawsuits against local authorities each year and rule against the government in less than 25 per cent of the cases. On rare occasions, Chinese media may publicise a particularly egregious case of official abuse of power, and subsequent public outrage forces the central government to act.

The first sentence seems to correspond closely to the Vietnamese case, but I think the responsiveness of the Vietnamese authorities is greater (except in the case of certain ethnic minorities who continue to suffer from government paranoia deriving from earlier associations with US-supported separatist movements). Nevertheless, given the similar underlying causes of continued poverty and unrest, it will be interesting to watch whether and how far the two states diverge in their management of the problem in future.

Must do something about this!

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Today, while motoring towards the office, I heard a BBC program about water in the Middle East. The Jordanians have put up a white tent in the desert of the Jordan valley where various dignitaries are gathered to discuss the water crisis - the pollution of the river (which has been dammed upstream where it falls wholly within Israel) and the rapidly falling level of the Dead Sea. They interviewed a female Jordanian farmer who pointed out that her children would have to find jobs elsewhere, simply because the aridity of her farm is now so great that she can barely eke a living. Prince Hassan of Jordan pointed across the river to the West Bank (which was actually under Jordanian rule before 1967) where 80% of the underground aquifer is taken out by Israel.

The reporter crossed the river and interviewed Palestinian villagers who rely on a spring, but up on the hill above is an illegal Israeli settlement. The settlers regularly destroy the pipeline to the village, have tried to blow up the concrete bastion the Palestinians have built around their spring and shoot at Palestinians who try to go near it. The result is that the villagers are lucky to have water for an hour a day.

The reporter interviewed an Israeli spokesperson who said that Palestinians could not be trusted to control water properly. You only have to look at Gaza, he said, where they have dug illegal wells from which they draw water in a profligate fashion. (I have not put this in quotation marks, but it is a fairly precise quotation and the italicised word was definitely used).

Israel's per capita GDP is 10 times that of the West Bank and Gaza. A lot of this income relies on irrigation. A lot of settlements in the West Bank have swimming pools. They have water 24/7. Where are the swimming pools in Gaza's refugee camps? I mean, who the fuck is being 'profligate' with water?

The Israeli "solution" to the water crisis is to build desalination plants in Israel that will pipe water to the Palestinian territories and the Palestinians will not only have to pay, but can easily have their water cut off if they don't behave. As for the poor farmers on the east bank of the Jordan valley...

The reporter reached the gloomy conclusion that Palestinians will go on hating Israel with a passion that is unlikely to produce peace, even in the (unlikely) event that they can get their own state.

Here's an interesting link from Anne Summers' blog on the Australian abortion 'debate'. I'm sure that the conclusions can be applied to the political strategies of other right-wing politicians in the US and elsewhere.

"We are still all on the death list..."

I heard this broadcast and the interview with Ayaan Hirsi Ali on the radio this morning.

Inter alia, she pointed out that the Social Democratic mayor of Amsterdam has not opened his mouth to criticize the oppression of women under Islam. Nor has he said anything critical of the Islamic community in general. But he is still on the death list!

Larry Summers on women

The latest thing I'm reading on some US/Canadian blogs is the view of Larry Summers (Clinton's Treasury Secretary) on women in science and engineering. Summers is President of Harvard, which one blogger mistakenly referred to as a 'PC' place. I mention the last point because I'm coming round to the view that we are going to have to fight all of the battles of the 1960s and '70s again - not just some of them.

Harvard's Economics Department was the scene of a massive battle at that time over whether such topics as 'poverty in America' or 'the economic consequences of the Vietnam War' were a legitimate subject of academic discourse. For the past 30 years we have come to take for granted that which we are now losing again.

Back to Summers. I believe that people who suggest that the relatively poor performance of women in maths and science may be due to biological differences are skating on extremely thin ice.

When you think about it, men and women are separated by a single chromosome. That's all. But let's accept, for the sake of argument, the assumption that this single chromosome programs our bodies in such a way that science and maths are male attributes and women are inferior at them. On the other hand, verbalization and what?... nurturing? are female attributes and men are inferior at them. It is certainly true that the huge majority of scientific and mathematical discoveries to date have been the product of the brains of males.

These male scientists and mathematicians consider that they have made discoveries about the universe. All of us can understand our world better as a result of the male ability in maths and science.

What if, I dare to suggest, these are not discoveries at all, but mere outputs of a brain structured in a particular way? All science is nothing more than the reflection of a set of neuronal impulses. (Structured, no doubt, in a random fashion through evolution or perhaps designed by a male god - depending on your "opinion").

If maths and science are no more than the outputs of a male brain, there is nothing at all available to validate them apart from the sheer prejudice that the male brain is superior to the female one.

Larry, tell me my female logic is f***ed!

(Personally, as an economist who is daily faced with the products of the male brain, I feel that a lot of so-called 'science' could well do with chucking out the window!)

Second, it occurred to President Larry that married women with children are unwilling to put in the 80-hour weeks that men in science and engineering are expected to put in.

Since I am an unmarried person, I can vouch for the fact that, were I to put in an 80-hour week on a regular basis I would need a wife or mother (though a servant would do just as well). Physical subsistence would become impossible otherwise.

Oh, but I forgot something. The female brain might be shown to be 'different'. Therefore, women who don't advance through the lack of wanting to work 80 hours in addition to looking after the kids, are merely demonstrating their "comparative advantage" in housework!

Come to my house Larry and see my comparative advantage in housework! (This is why I love economics, it has so much explanatory power!)

The politics of aid

A natural disaster is not so very far from a natural one. Tsunami occur regularly in the Pacific - 80% of all tsunami occur there. But the last time I remember hearing about a lot of tsunami deaths was in the case of the Chilean 'quake. I think it was in 1960. A lot of Chileans were killed and some Japanese too. (I remember stuff about the water being sucked out and the animals behaving strangely before it hit - but I was a kid and that's about all I remember.) Since then a warning system has been set up and you don't hear a lot about people being killed by tsunami.

Has anyone ever heard of a famine occurring in a democratic country? Sure, we have droughts, but we don't have famines. That's because the natural disaster doesn't lead to large-scale human catastrophes in democracies. Governments that respond to the people can't afford to allow people to die just because there's a natural calamity in one part of the country. People who live in drought-stricken areas get government subsidies and welfare if they lose their farms/businesses. They don't die.

Man-made disasters are more obviously man-made. They happen because of civil wars, governments that don't give a damn about the poor, siphoning of wealth out of the country and exclusion of the majority from the benefits of economic growth. While the rich get richer, the poor fight each other over access to a diminishing pool of resources.

It has been great to see the outpouring of public sympathy and contributions by people in the developed world to the victims of the tsunami. But really, we should ask ourselves if the people of Darfur are any less deserving, or the Bam earthquake victims, or the people caught up in civil wars in Sierra Leone, Liberia, the Congo, Rwanda etc., etc.. The world is full of disasters, yet we in the West apparently have 'disaster fatigue'.

Do we really have disaster fatigue? Or is it just that we don't know what to do? Is it just that we get no guidance from those who have the necessary information and the ability to pull the resources together? If our governments are not interested in the plight of Darfur - but they can spend hundreds of billions on invading Iraq (which wasn't a poor country, but is now) - how can the rest of us be expected to respond adequately?

There's no point in blaming the UN. The UN is made up of its member governments - especially the Permanent Five in the Security Council. If the governments won't act, the UN cannot act. Read Linda Polman's book, We Did Nothing.

The UN has a target: the rich countries should spend 3% of GDP on foreign aid. Only one or two countries come anywhere near it (maybe the Dutch and one or two Scandinavian countries). The US is near the bottom of the list (around 1%).

In this country, successive governments have prided themselves on the fact that 80% of the foreign aid budget is spent in Australia! Foreign aid is designed to support Australian companies! But even in that case there are benefits to the developing countries - after all, they do get roads, bridges, water supply and whatever. But it is the Australian firms that determine the aid priorities, not the poor people in the assisted countries.

That leaves the NGOs (non-governmental organizations). Ordinary individuals can support these on a continuing basis by making regular contributions (in Australia these are tax deductible). Their advantage is that they are on the ground, they listen to the voice of the poor and they do their best to promote economic and social development. Generally, they are less involved in the corruption that characterizes officialdom in most developing countries.

Their disadvantages are also manifold, however. Increasingly they rely on government funding - so they have to dovetail their programs to government priorities. The classic recent case is the Bush administration's imposition of it's "Christian" agenda on NGOs. But it goes way back. The Peace Corps, for example, was widely regarded as a tool of US imperialism in the Vietnam War era. Another case is that of CARE International, which was badly divided during the Yugoslav crisis between those (in Australia) who took a politically neutral line and those who thought they should also advocate the human rights agenda of the Canadian government. Steve Pratt, an Australian CARE worker, ended up in a Serbian prison because he spied for Canadian CARE. By supporting NGOs, however, individuals can have more say in how they operate.

Another problem of NGOs is that their resources are small. They can't build bridges and highways, yet these are also needed if economic development is to take place. What's the point of setting up a producer co-operative if the people can't get their goods to market before they're spoiled? In a lot of cases - microfinance is the classic example - NGO projects rely on continuing subsidies. The poor get some income, but the need to subsidize the project means that somebody else loses out and economic efficiency is never achieved.

Basically, the problem lies with our governments and what we, in our relatively democratic societies, can force them to do. I don't think the answer lies in anti-globalization politics. Destroying the myth that US and EU farm subsidies benefit mainly the family farmers would be a good start. We can also ask governments to meet the 3% target and, even if they spend most of the money at home there will still be benefits for the aid recipients. Ultimately, it could be a matter of life and death for us.

Satan v. IP

An interesting news item this week was about the decision of a European court against Microsoft. The judges ruled that Microsoft's refusal to divulge the source code of its operating system is anti-competitive. They have ordered Microsoft to release the code so that other companies can build software that works on the MS operating system.

MS can, of course, argue that their operating system is their Intellectual Property (IP). Hello there! The judges have said that IP is anti-competitive! So, what is it that makes IP different from other forms of property? Is there such a difference? Or should we go along with Veblen and argue that property is nothing more than a legal claim to a monopoly over what is actually the social capital of the community. Is all property 'anti-competitive'?

Veblen's discussion of social capital in fact specifically referred to what is known these days as IP. He talked about a tribe of indigenous Americans and their manufacture of equipment. Apparently the knowledge about how to manufacture this equipment was passed down by tradition through the women of the tribe. Nobody in the tribe placed any value at all on the things themselves. They were manufactured quickly out of materials available at any location, but if the women were lost the knowledge went with them and no more of this necessary equipment could be made. Anthropologists have made similar observations about Australian Aborigines. If these observations are so common place in anthropology, one wonders why the majority of economists have so steadfastly ignored them. Instead, the economists not only argue that it is the things themselves that have value, but that markets and competition are only possible when these things are somebody's private property.

About 100 years after Veblen, economics has come again close to the view that capital is knowledge rather than things - although it has not entirely given up the idea of capital as 'things'. The 'new' discovery of economics is that something known as 'human capital' contributes a lot more to economic growth than we hitherto thought. Well, to be fair, tests of Solow's growth model, which was developed way back in the '50s, tended to show that 'technical progress' contributed about half of all growth in the US economy, but 'technical progress' could not be quantified in the same way as labour and capital inputs could be (don't let me start here on how 'capital' can possibly be quantified). Technical progress comes out of people's imaginations and that isn't economics. OK, so some half century after Solow we have got around to acknowledging that what people know is the most important contributor to economic growth and we have named it 'human capital'.

Human capital is not to be confused with Marx's concept of labour power (which is a person's capacity to work - and naturally includes the person's skills and intelligence). Modern economics requires the division of labour's contribution into two parts - that contributed by 'basic' labour and that contributed by 'human capital'. Each unit of 'basic labour' receives its marginal product in wages as does each unit of 'human capital'. This 'explains' why a manual labourer receives less than a computer engineer.*

'Human capital' is what we or our parents have invested in improving our knowledge and capabilities. It is a commodity that has been paid for and is therefore our private property. Whatever we come up with, by applying our human capital, that nobody else has come up with is our IP. Unless, that is, we have been hired by Microsoft in which case the product of our brains is owned by the company. The problem, as with any manufactured thing, is where we draw the line between our dependence on the knowledge and work of others (past and present) and what is really, truly our own.

It is true that markets and competition cannot exist without private property. It is private property that makes resources scarce so that people have to compete for them. This existence of property has such momentous implications for society that governments have had to expand tremendously over the past couple of centuries in order to regulate the acquisition and use of property. Anti-trust laws came into existence, not in order to promote competition, but in order to ameliorate the effects of competition. Bill Gates, for example, is a highly successful competitor. He has managed to privatise one slab of social capital (knowledge) that we all need to use. He has established what any competitor would try to do in order to succeed in their chosen field - barriers to entry.

While private property originally arose through gift (inheritance) and seizure, I'm not suggesting that's how Gates has done it. He got lucky because IBM used his software to run their computers and at the time they dominated the market. Other people adopted his operating system and other programs because of compatibility issues (need for computers to talk to each other).

He has been supported by a governmental and legal framework that protects property. But property has never been absolute. States have always limited property rights in order to maintain their legitimacy and prevent a descent into chaos. (Want examples? I can give plenty.)

IP is an interesting category of property, however. Compelling Microsoft to release its source code doesn't mean that there will be 2 operating systems or twenty (as would be the case if a manufacturing monopoly was broken up). In theory, once the knowledge is out, anybody at all can get hold of it - all they need is to understand programming (so count me out!). Same thing with atom bombs and other WMD. Which, by the way, is why we had to invade Iraq so that the knowledge would stop leaking. Somebody may have convinced George W. Bush that Satan was hiding in Fallujah, but the preservation of or access gained to certain kinds of IP are what the capitalist economy is really all about these days.


* If we are trying to explain the wages of David Beckham, on the other hand, we need a far more robust theory than this!

more on Ayaan Hirsi Ali

from the blog of Yule Heibel